Think of insurance as your body armor. It’s there to protect you and keep you safe from the hidden perils of daily life. Not all policies are equal so it’s crucial to be sure you have adequate coverage.
Any chinks in your armor and you could let in some enemy fire. Step forward umbrella insurance. It gives you that little bit extra to give you the peace of mind that you’ve done as much as you can to protect yourself.
It acts as a fail-safe for your savings and other assets. How much umbrella insurance do you need? Here’s everything you need to know.
How an Umbrella Policy Works
A personal umbrella policy or PUP is a type of liability insurance. Let’s say you cause injury to someone or damage their property and they file a lawsuit against you. Your PUP policy can safeguard you from financial responsibility.
Umbrella insurance is relatively cheap to buy. It’s normally possible to buy it in coverage increments of one million dollars. Insurers will typically require you to have auto or homeowners insurance before you buy an umbrella policy.
Excess Liability Coverage
Here’s an example of how it could work for you. Let’s imagine you accidentally run a red light. By doing so, you then cause a lot of damage to another vehicle. The driver and passengers in the other vehicle are also injured.
It turns out that the car requires forty thousand dollars to repair. Treatment for all the injuries ends up being two hundred and fifty thousand dollars. It transpires that the driver of the other car is a physician.
She won’t be able to work for weeks due to a broken leg. She sues you for an additional three hundred thousand dollars for loss of earnings. The grand total you will owe is five hundred and ninety thousand dollars.
There’s a problem. That’s because the liability coverage you have with your auto insurance will only pay out up to three hundred thousand dollars. That leaves you with a shortfall of two hundred and ninety thousand dollars.
Check the Small Print
If you had taken out umbrella insurance, it could pay the difference between what your primary insurance covers and what you would still owe.
You should always check the small print of all your policies. This is so that you understand whether you need extra coverage. That might include knowing if your homeowner’s insurance policy covers you for flood damage, for example.
Common Reasons to Buy an Umbrella Policy
You could argue that everyone could benefit from umbrella insurance. That’s because a large lawsuit could wipe out anyone’s current savings and what they’d stand to earn in the future.
Even if they weren’t able to cover a massive settlement now, they could be stuck paying off the debt for years to come. Nonetheless, there are also some specific instances when considering taking out umbrella insurance is a wise move.
Owning a property or having significant savings could both be good reasons to take out a policy. You may also own things which can lead to injury lawsuits. These could be swimming pools, trampolines or dogs, for example.
You should always check any special conditions related to dogs. This might include their breed or an obligation to properly train them.
Even if you don’t possess significant assets, you could still be sued for a quantity of cash greater than your entire net worth. In these situations, a personal umbrella policy will help protect you.
Risky Activities
Some activities you engage in could increase your chances of being sued. These include being a landlord, coaching children’s sports, and volunteering.
Posting reviews of products or businesses is another key example. Let’s say you run a blog that posts reviews of local businesses. It could be that a very negative review results in a defamation lawsuit. Your umbrella policy could provide coverage.
It could be that you drive your child’s friends to their sporting activities. If so, you could end up being responsible for huge medical bills if you were to cause a serious accident.
You might also want to consider an umbrella policy if you engage in certain sports in which you could injure others. These could include surfing and skiing, for example.
How Much Umbrella Insurance Do You Need?
It all comes down to risk. The more you have to lose and the more you participate in risky activities, the more it makes sense to consider an umbrella policy.
You should consider buying at least enough umbrella insurance to cover your net worth. This will include your savings and other assets as well as your income. You might also want to include potential income.
It could be that you’re likely to earn much more in the near future than you do now. This might be the case if you’re a medical student, for example.
An umbrella policy with one million dollars in coverage normally costs between a hundred and fifty and a few hundred dollars a year. This extra cost may be well worth the peace of mind you get knowing your assets are protected from lawsuits.
Some Exclusions
Umbrella insurance only offers secondary coverage. That means if you have another policy that provides primary coverage, you’d have to exhaust that policy’s limits first.
Your personal umbrella policy may not provide coverage in some scenarios. These would include cases of property damage, injuries or losses for which your commercial business is liable.
If you intentionally assault a guest in your home, you’re unlikely to be covered.
Some policies also exclude coverage for injuries you cause. This would be in cases when you have engaged in dangerous activities or used certain vehicles, such as dirt bikes or jet skis.
Make Sure You’re Covered
How much umbrella insurance do you need? The answer to that question will depend on your assets and potential future earnings.
You may also carry out activities that could increase the risk of being sued. If so, you may want to consider an umbrella policy.
Find out here about how we can give you a personal umbrella insurance quote today.
**This blog provides a brief overview of the terms and phrases used within the insurance industry. These definitions are not applicable in all states or for all insurance and financial products. This is not an insurance contract. Other terms, conditions and exclusions apply. Please read your official policy for full details about coverage. These definitions do not alter or modify the terms of any insurance contract.